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Intel may invest in India testing plant

Government official says chipmaker will put about $400 million into a testing and packaging facility near Bangalore or Chennai.

Capitalizing on a growing local market and inexpensive labor, Intel plans to build a testing and packaging facility in India, according to one government official.

The company will invest approximately $400 million in building the facility, which will likely be located near Bangalore or Chennai, India Communications Minister Dayanidhi Maran told Reuters. The deal will be announced in a month, according to the news report.

On Thursday, the Communications Ministry issued a press release stating that Maran handed a letter from India Prime Minister Manmohan Singh to Intel Chairman Craig Barrett outlining the benefits of building in India. Maran was on a five-day swing in the United States. At that time, though, the deal was only a possibility; the purported benefits outlined in the letter would accrue "in the event of" Intel's decision to build in India.

Intel declined to comment, but spokesman Bill Calder said: "We are always looking at different places."

India is one of the world's fastest-growing PC markets and, by extension, one of Intel's fastest-growing geographies. By putting a testing and assembly plant in India, the chips can reach local PC manufacturers much quicker. Intel already has a chip-design center in India that is working on a .

Testing and assembly plants are facilities to which manufactured processors, chipsets and other chips are sent, tested, placed into packages and shipped to PC makers or distributors.

Intel manufactures its chips in plants located in the United States, Israel and Ireland, stable countries with fairly extensive electrical and utility systems--key factors chip companies examine in determining where to build a fab. (Local tax breaks are the other big factor.) Because most fab operations are controlled by robots, low labor costs are typically a minor consideration in this decision.

By contrast, labor costs are a greater consideration in testing and assembly facilities, which are more low-tech. As a result, Intel has located most of these in developing nations such as Costa Rica, Malaysia and China, among others.

Testing and assembly facilities also cost less than fabs, which can cost $3 billion to build.

Indian officials had lobbied Intel to build a fab in India. The country is also trying to woo more hardware manufacturers to build in India, putting the nation in competition with China and Taiwan.

No major manufacturer has a fab in the country, although a Korean entrepreneur has laid plans to create a foundry in Hyderabad, according to sources. To help build India's chip-manufacturing industry, the Indian Institute of Technology in Bombay has created course curriculum around semiconductor design that it currently is trying to port to other universities, according to Sunil Sherlekar, the head of the embedded-systems group at Tata Consultancy Services.